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17 Frightening Facts About Retirement Savings in America

Investing great John Bogle, founder of The Vanguard Group and champion of the index fund, believes our nation's retirement system is headed for a serious train wreck. Anyone who looks objectively at the evidence would have to agree with him.

I recently examined several outstanding research studies on the state of retirement savings in America, and here are some of the alarming facts that I discovered:

Only 42% of private sector workers age 25 to 64 have any pension coverage in their current job. That's lower than the 50% who had pension coverage back in 1979. (Source:Center for Retirement Research)

A 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses throughout retirement. (Source:Fidelity Investments)

Just 14% of American workers are very confident they will have enough money to live comfortably in retirement. (Source: Employee Benefit Research Institute)

Only 16% of American workers are very confident that their investments will grow in value. (Source: Employee Benefit Research Institute)

Half of current retirees surveyed say they left the work force unexpectedly as a result of health problems, disability, or getting laid off. If you think you'll just "work forever" instead of planning for retirement, you may want to think again. (Source: Employee Benefit Research Institute)

For a low earner retiring at 62 -- Social Security replaces 40% of pre-retirement earnings. This is unlikely to provide for a comfortable retirement. (Source: Employee Benefit Research Institute)

Nearly 75% of retirees have not saved enough and said they would save more if they could do it all over again. (Source: Health and Retirement Study)

More than one-third of all households end up with no employee-sponsored retirement plan at all during their entire work lives and others, who move in and out of coverage, end up with inadequate 401(k) balances. (Source: Center for Retirement Research)

At age 65 and above, Social Security benefits provide more income than any other source for over 60% of households, regardless of marital status. With an average monthly benefit of $1,230 for retired workers, this indicates that a lot of retirees must be struggling. (Source: Health and Retirement Study)

One-third of households end up entirely dependent on Social Security; for low earners that portion is 75%. (Source: Center for Retirement Research)

21% of workers covered by 401(k) plans choose not to participate. (Source: Center for Retirement Research)

A typical worker should accumulate about $363,000 by the time he or she retires. According to the Fed, a typical household approaching retirement had 401(k)/IRA balances of only $120,000 in 2010, far short of the projected amount for the individual. (Source: Center for Retirement Research)

In 2002, the mean household wealth of married couples reporting excellent health was approximately three times that of married couples reporting poor health (an average of $500,000 compared with $164,000). (Source: Health and Retirement Study)

Average household net worth was $31,000 when both partners were in poor health but more than $400,000 when in excellent health. (Source: Health and Retirement Study).

60% of workers report that their total household savings and investments, excluding the value of their home and any defined benefit pension, is less than $25,000. (Source: Employee Benefit Research Institute)

56% of workers report that they have not attempted to calculate how much money they will need to have saved for a comfortable retirement. (Source: Employee Benefit Research Institute)

These are just some of the facts that are included in the studies referenced above. For more detail, I'd encourage you to read the studies in their entirety.

One big takeaway is that many Americans are saving far too little for their retirement. And many of those individuals who are saving are making costly errors that result in poor investing returns. Bogle believes that our society tends to be wired for short-term thinking when it's long-term strategies that are most needed right now in tackling this retirement crisis.

In order to better understand this crisis, we've put together series of articles that take a deeper look at the important challenges facing our retirement system. In "5 Huge Myths About Social Security," Ilan Moscovitz examines our widely misunderstood Social Security system. In another commentary, Sara Murphy explores the question of whether 401(k) plans are a failed experiment. Finally, in a concluding commentary, I put forward some ideas for possibly improving our overall retirement system. We hope you enjoy the series!

To read all of the articles in this series, click on the following links:

Comments from our Foolish Readers

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During the melt down of the Soviet Union. there was a photo of a retiree, an elderly woman. I think it was in an article in the NY Times. That woman was sitting on her bed and was showing to the reporter her stash of pickled goods. These she stored under her bed and was accumulating to sustain herself in retirement.

At the time, I told everyone around me "that's us in the U.S. in a few years." My relatives, friends and associates laughed. Meanwhile, I saved.

So who is laughing now? Welcome to the the US version of the USSR.

Am I frightened by the statistics? Not at all. This was inevitable. What is frightening is now the Neanderthals in Washington will deal with this. It will make "the evil empire" which was known as the Soviet Union look like child's play. I'm waiting for the ACLU to file a class action suit against the U.S government for breach of fiduciary responsibility.

The comment about short-term thinking is right on. Alas, this attitude permeates our society and goes all the way to the top of the corporate ladder. If, for example, financial "services" corporate officers had been thinking long-term (or even intermediate-term), I doubt that they would have invested so heavily in toxic assets and we might have avoided the resulting 2007 economic meltdown. Unfortunately they, like most of their counterparts in other sectors, were hopelessly addicted to quick profits, regardless of the results down the road.

We have become, as a nation, rather like a homeowner who is tearing out his walls and floors and burning them to heat his house. Sure, it'll work for a while, but there will be hell to pay later on.

According to the list, unless you have a company sponsored pension plan, you just don't save for retirement. This is one of the failings of the public education system that never talks about economics.

Most Americans have a high time preference and spend all or more than they make and never save or invest for their future. Perhaps they don't expect to have a future?

Perhaps the think like the Fed and believe they can spend their way to wealth. I once heard a comment that most people were driving their net worth.

Time preference in childhood is one of the key predictors of success in later life. Those who can wait for a second marshmallow rather than eat the one before them forthwith turn out to be those who can bring themselves to save and invest.

Social Security has the virtue that it institutionalizes a degree of prudence for all. No one ends up entirely in the fix of the grasshopper facing winter.

Perhaps 401k law etc. should be tweaked to make it easier to get into, and stay in, a plan. People whose willpower is weak when it comes to delayed gratification might be well served by a system in which it takes at least a little time and effort to reject the default decisions to get into a 401k, contribute to it, and leave the money there until retirement.

It seems there a lot of us who fit that description, and if you're in the minority who have thought ahead, hardhearted scorn may be a source of momentary glee but in the long run it will cost us all. To indulge in that sentiment is to fall into the very trap, with one's reason, that the others have fallen into with their money: going for immediate gratification at the cost of long term pain.

And just for the record, I'm in that minority too who have saved. It wasn't any easy decision to hang on through the crashes and recoveries, but at least that way I didn't end up having bought high and sold low.

>>During the melt down of the Soviet Union. there was a photo of a retiree, an elderly woman. I think it was in an article in the NY Times. That woman was sitting on her bed and was showing to the reporter her stash of pickled goods. These she stored under her bed and was accumulating to sustain herself in retirement.<<

During our family visit/14 day cruise from St Pete to Moscow, just after Russia opened to tourists in July '93,

we saw so many of the elderly selling their pots and pans, furniture, and any/everything they owned, to make

a few rubles to buy some bread to eat. So many of the average Russians we saw were reduced to begging,

or dead drunk in the gutter, in despair! Our teenage kids got to see how bad things can get for the poor. It was

a great cruise, very reasonable, and run by a United F/A's husband and wife team. Every town we stopped at

had the best musicians come aboard to perform for tips - they said they made more doing that than playing at

the best venues in their towns. How sad to be reduced to subsistence living, or, retirement, with absolutely

no health care nor support from government. I hope we Americans don't abandon our poor, sick and low wage

I'm starting to question the sanity of saving for retirement. After all, For the last decade, the Federal Reserve has been following an "easy money" policy as part of its "dual mandate" to stimulate job growth. The Federal Reserve has recently stated that it will continue to follow this policy, and will be printing nearly a half-trillion dollars per-year in exchange for government bonds for the foreseeable future. Without a corresponding increase in GDP, it is inevitable that this action will be inflationary. Inflating the currency, which affects everybody (especially the poor and middle class) in order to fund government spending is in effect, a tax. There are no tax increases on the horizon that can compete with what inflation is going to do to my savings.

After over a decade, it's clear that this "easy money" approach has not stimulated job growth, and is threatening the financial well being of our citizens; especially the poor (who spend well over 100% of their income on essentials) and the retired who are on fixed incomes and now make zero interest on savings. What good will it do to have at least $363,000 in savings at retirement if the government has inflated the currency to irrelevance and there relatively few working to create goods and services to buy?

I think I may go out and buy a new boat instead. At least I'll have the boat when it's all said and done.

Have fun and enjoy the things you can have while you have the strength and energy to use them.

Have a life where one puts things off, like new cars, bigger houses, iphones, Las Vegas vacations etc. Use that money for saving/investing. Then when you are older and have the $$$, you find you don't have the strength or energy to do all those things you wanted to do at retirement. So you leave it all to your kids so they can do what you wanted to do when you were young.

Somewhere in the middle is a balance. Fun and savings. I doesn't really matter how much $$ you accumulate, $100k, $200k,$500k. Or what it will be worth then. Any way you look at it, it will be more than what you have if you are one of those mentioned in the article.

Heck, you might even die at your retirement party. Plan for the future, but party once in a while anyway. If you can't enjoy life while you are "growing up", you won't enjoy it when you're grown.

This is an extremely lucid, timely, and thought-provoking article that truly resonates. So much so, in fact, that I sent the link to my children (young adults) and highly suggested that they also read the commentary.

The fact of the matter is if one is living pay check to pay check there is nothing to save. I'm talking about not driving a new car, I'm talking about food and shelter. The people that have the grasshopper and the ant tale as there back up logic may not have been in a position of having nothing. Not having to live on minimum wage year after year. It is not the people with the least who are causing the financial and moral problems that face us all. If the median wage of an american is 45,000 why are members of congress making four times that and denying us health care at the same time.

Have less children, and put those you have through maths and science. There wont be any work for certain sections of the population with higher degrees in underwater basket weaving, as jobs will continue to be shipped abroad. Then maybe, just maybe, those with jobs can save for retirement.

It also depends on what you want to do with retirement. I have no interest in golf or boats.

How exactly did we get to a place where we automatically assume everybody is somehow entitled to a "comfortable" retirement.

Someone earning near-minium wage probably doesn't even have a "comfortable" present, even during the middle of their most productive years. How such a person could expect to somehow have their financial position improve by NOT working anymore seems insane.

It is completely unreasonable to expect the government to make you "comfortable" from Age 65 indefinitely. If you want to have a comfortable retirement, you better start saving your money, or hope that your kids find much more financial success than you did (and that they like you).

I would be more worried about "forced" retirement due to ageism at the office. It seems more and more people who have gotten laid off in their 50's have difficulty finding work again. What if you are 60 and not quite ready to retire and can't find suitable work? That seems more a likely scenario than someone who has been able to hold onto their job past 60.

No problem with my wife and I saving over the last 35 years. Simple life style and live below you salary. With that said we made sure we purchased a home mortgage that one income could afford even though both work. Gradually increased our 401/403 contributions until we could max out. We were only middle income earners. Never carried credit card debt. Always paid credit balances monthly. In 41 years of marriage we never paid interest on any credit card. After saying All this we are 61& 60 years old, both retiring at 62. We will have accumulated retirement savings of $1.3 million. Not including debt free home or possessions. In retirement we will be living slightly over our working income because one of us will get a pension and both collect SS at 62.

To sum it up. Our meat and potatoes in retirement is our nest egg and pension. The gravy comes from SS.

This was a very doable plan my wife and put together 30 years ago. Reviewing it every 5 years. Up until 3 years ago we did it ourselves, now with a financial planner yearly.

We raised two children, put one through college and the other married and has their own business. Our sacrifices were minimal. We vacationed yearly, however we very frugal on how we did that.

It those that spend well beyond what they should that keeps them from accumulating wealth for the future. Only those that think the government will take care of them. Fools for sure.

We are proud of our lifestyle and will only get better in retirement. My close friends ask, how are we able to do it? My answer is always they same. "We live below our means". Living with that motto allowed us to save at times more than 20% of our income or more yearly without sacrificing any of our needs and enjoying life.

So those that say saving a good nest egg is not feasible are the real Fools. It can be done.

However at times like this where unemployment is so high, a glitch can de-rail savers, and completely train wreck those that don't.

Elect someone that we will get the USA on track. Our current path will bring everyone into a train wreck that we won't recover from.

I'd also suggest that early financial experiences are also a predictor. My father lost his job in 1960. I was just entering high school. He had a family of 8 to feed and was really fearful. We struggled for a year, and he spent every dollar, including cashing in his life insurance policy, to keep us going. I worked a part time job to pay for the bus fare to and from high school and also to pay for milk to go with my sack lunch.

Watching my parents sweat bullets to make ends meet, cut out newspaper coupons each week and compare prices to make ends meet and feed us for another week. Those images were impressed upon my consciousness and I will never forget them.

Eventually, my father did find employment in the retail sector. He worked 6-7 days a week for a "salary," including weekends and two nights a week. He got minimal benefits for his labors, and worked about 55 hours a week for a basic wage.

I wonder how many people today would work that much for a wage that was actually below the minimum per hour, if one takes into account the wages earned and the hours worked? I think the answer is in the current unemployment statistics.

One of the things that strikes me when I read the Motley Fool articles, and I'm sure it also strikes you as odd, is the articles about those champions of discretionary spending, such as Apple and Nike.

If most of us aren't saving in the U.S. and have little or no retirement savings, then how can we possibly afford a product such as an iPhone5, which costs hundreds of dollars and will be obsolete in 6 months? Ditto for "air Jordan's" or the current $300 permutation of the Nike footware line?

The answer is obvious. We buy these things because we can't afford them and yet we are willing to put retirement savings on the backs of others, so we can be "social" and show off our toys to our friends.

Of course, some of us have absolutely no discretionary spending ability and so we don't buy these "toys." It seems you are one of these. Others, who do have some "discretionary spending" decide they would rather spend their money elsewhere or save it. I'm one of those.

Every dollar we don't spend is a dollar we can save.

Here at the Motley Fool, which promotes investing, the current "darlings of the investment world" generate buzz. Apple is one of these. So we are encouraged to buy Apple stock, and those who invest in such stock are inclined, via the comments, to promote the "wonders of Apple" products. The sales of those products are vital to the success of the company, and the increases in the stock prices in which so many have invested.

I'm on a condo board. We get emails from owners who can't afford their monthly fees. They ask us to give them a payment plan, waive fees, etc. At the bottom of some of these emails is the promotion "sent from my iPhone" or "sent from my Android phone." Isn't it ironic? People who can't afford to honor their agreements and fees send emails via their smart phones requesting, in essence, that the rest of the owners in the association "give them a break." Yes, I and my fellow owners should pay our monthly fees in a timely fashion, so the streets get plowed, the exterior maintenance is done, and so on.

Meanwhile, some of us expect to purchase our toys first, and then honor our agreements last.

The article should also mention the lack of sustainability of pensions. When they were originally implemented, the average age after retirement was much lower. The math no longer works.

Extremely simplified example: 5% saved on a 100K salary = $5K * 40 years = $200K. Let's say it triples in value through interest to $600K, which is an optimistic outcome. That person retiring at 65 lives to 85. 20 years @ 75% of retiring year salary is 75K * 20 years = $1.5M, short by a mere $900K per pension. The shortfall is even worse when you figure in realistic appreciation of the savings and value lost to inflation.

Deflation needs to be allowed to happen to reprice things according to what is realistic for mass consumption.

So many intelligent comments above makes me wonder if these were the views of the majority of people, then there wouldn't be a looming crisis.

But sadly, there is.

My dilemma is that I don't trust the govt to keep its hands off my savings, in particular my retirement savings.

I have saved and saved and rather than living the high life continued to put money away for the future but I am so concerned that my savings will be eroded by tax or other legislation to support those who haven't put anything away.

I don't believe that SS will be here in its present form within the next 5 years and will be basically the safety net (temporary) that it was originally designed as being.

I have nightmares like the one last night of having to swim in a tidal wave, and it might be related to finances! I have relatives who have not saved anything, and although I have saved what should have been enough for comfort in retirement, I am in a panic because I am not getting returns that would protect me from inflation. I also cannot throw my family to the wolves even though they were foolish and saved even on my small income. My future and their futures look bleak beyond belief.

The fact of the matter is that most Americans don't have any spare cash at the end of the month because of taxes and inflation. I'm single, and certainly poorer than I was a couple years ago, and that is with no debt other than mortgage (and I don't have a McMansion). Even if they cut cable and the cell phone down to text and calling, I doubt it would make much difference.

The money system is a big issue. Funny how ever one became worse off after we defaulted under Nixon. Though the currency was nominally backed by commodities, the average person was certainly better off. Inflation took off and salaries never kept pace.

There is was this 'crazy' guy named Ron Paul that laid out the situation, but most would rather believe in fairies and unicorns.

I think this article was timely and to the point: I fall into the camp of Miker1951, mpualsen6 & Darwood11. My beginnings were less than humble; my family considered themselves the working poor but in reality their income was below the poverty level for a family of 2 let alone the family of 7 that we were.

We lived within our means and did not take gov’t assistance. They saved to buy a house within their means, a car and we had food and clothes. We did not go out to eat; everything was homemade at home but that is the basis for how I eat today and we are so much happier and healthier for it. They had a modest savings, shared with us what was going in their finances since they were somewhat older as typical parents.

People today buy things they don’t need and can’t afford; I pads, , Uggs or Prada purse yet I see some of these folks sporting who should not have when I don’t even think about saving to get one and I have some disposable income to spare.

I agree it gets to be somewhat difficult to continue to be somewhat discerning in what I buy and spend when others don’t because then folks think I should pay their way too but my husband and I bought our first starter home, worked for several decades to be where we can do vacation and have a fun car and glad that none of the 3 kids will be moving back home.

Unfortunately the government does not encourage savings because they tax the dividends on the money you attempt to save and have already paid taxes on this. So when folks want to cut the taxes on Dividends, this is for everyone, not just some. We should be pissed off at those who continue to double dip in our pockets for money because they will not control their spending.

If we put Congress/Senate/President on Social Security, this problem will get fixed really quickly. Ask yourself why Social Security & Obama Care does not apply to them!!

You know, when I hear constant harping on overconsumption and living on debt, I start to think that the "luxury" lifestyle is envied and resented. Yes, overconsumption and debt exist, and they do harm us all, but do you seriously think that a family living on a median income can save meaningfully? Do you really imagine that all of these people waste money they don't have on bogus "luxuries?"

Please get out of your suburb, go into a major city, and spend the day riding public transit. The three lower quintiles have very meager savings, and in many cases could not do much better because they have to live on stagnant incomes. I do wish overconsumption were not so highly valued, but I will tell you, if you live modestly, people assume that you don't have the means to live better and treat you (i.e., mistreat you) accordingly. The reasons people spend the way they spend are more complex than you are making it out to be. Just one example -- in a typical "good" high school, do you really think a teen can do without what all the other teens have? Do you think they can live frugally and still have friends? I wish!

<I do wish overconsumption were not so highly valued, but I will tell you, if you live modestly, people assume that you don't have the means to live better and treat you (i.e., mistreat you) accordingly. The reasons people spend the way they spend are more complex than you are making it out to be. Just one example -- in a typical "good" high school, do you really think a teen can do without what all the other teens have? Do you think they can live frugally and still have friends? I wish!>

Seriously!?! If your teens need to have all of the items and gadgets that other teens have in order to have friends, you'd better look closer at yourself and the values you taught your child and the type of people they are trying to be friends with.

There are some very well thought out comments here unlike I see in the media. My take is that we are headed for a meltdown and it's not "if", it's "when and how big". Those that can hedge sufficiently to cover the bulk of their portfolio, congratulations. For those of us that can hedge some of it, hope for a degree that doesn't exceed your hedge. For the majority that can't take any or much protective action, no degree of socialism, ObamaCare, Obama XXXX will protect you. Even if Mitt could deliver on all his promises, we are in such deep trouble it's unlikely we can be pulled out of some major meltdown that will change America for a long time to come, if not forever. It's sad that we have reached the point of so much apathy that many think that this could be our last election ... that Obama will take over as dictator and the people will not revolt. Are we ready to have our gold confiscated by the government again?? Are we ready for a full socialistic society where hard work and dedication does not necessarily lead to prosperity?? We're already part way there and it's a slippery slope to go the rest of the way. Apathy that leaves questionably crooked politicians in office for a lifetime isn't suddenly change. It's an attitude that leads to a Natzi Germany, Communist Italy and others. A few take the lead and the sheep follow. Ultimately a police state arises from this lack of interest, then fear gets added to apathy and we're all done.

[[do you seriously think that a family living on a median income can save meaningfully? Do you really imagine that all of these people waste money they don't have on bogus "luxuries?"]]

Half of my low income extended family are savers, the other half are debtors. They all earned enough money to save, but chose not to. Most have been in the lower part of middle class, and some have been part of the working poor. The debtors and savors make about the same amount of money, but they also make different choices. I sometimes end up subsidizing fishing trips for relatives who make more than I because they refuse to manage their money. Sure I could just leave them out of the trips, but they are family, so I save a bit extra to help them out.

[[Please get out of your suburb, go into a major city, and spend the day riding public transit. The three lower quintiles have very meager savings, and in many cases could not do much better because they have to live on stagnant incomes. I do wish overconsumption were not so highly valued, but I will tell you, if you live modestly, people assume that you don't have the means to live better and treat you (i.e., mistreat you) accordingly. The reasons people spend the way they spend are more complex than you are making it out to be. Just one example -- in a typical "good" high school, do you really think a teen can do without what all the other teens have? Do you think they can live frugally and still have friends? I wish!]]

I have spent most of my life living what you claim is so hard. It is not that hard, people just have to make better decisions. I was the poor kid in a middle class school. I worked to drive an old piece of junk while my classmates were given nearly new cars on their 16th birthday. Every Sat during the fall I ran a 5k race in the morning, then spent 6 hours standing at work to pay for my car and dates. I was not focused enough to win an academic scholarship and I was not athletic enough for free school. I worked my way through school, and I was only making minimum wage the first year. I took a third shift job to be able to move out of my parents house and still pay for school. It was easy.

The really sad thing is that I am rather lazy. I have a number of friends and family members who are really dedicated to their jobs and making money who earn far more than I do. Sadly some of them have so much optional debt that they lost a house or went bankrupt.

Lack of understanding about how money works is a huge cultural problem for the USA and it is also one of the biggest failures of our k-12 educational system.

This is about choices good and bad i do not have a 60" tv in my living room my new car is 9yrs old and i do not live in a 500k home i put all i could in my 401k so that i could enjoy my retirment and yes SS wil pay part of my living expenses i feel sorry for the people who lost there jobs but not for the ones who have 2 new SUVs in the driveway of their 500k home (495k morgage) the new 90" TV and every chanel the cable offers but complain that they can not save money ----sorry just venting lets distribute the wealth.

@J6R--Do not be afraid of the number, $363,000 . Your personal number should be 9 (nine) times your annual earnings. The number could be much larger,or smaller depending on your spending habits.

Could you elaborate on this? Where did you come up with this number? What is it based on? I don't see how such a low amount of savings can possibly even provide a firm base for retirement, much less fully fund a comfortable one.

For example: the number I most often come up with for even a semi-secure retirement is in the neighborhood of $1M. That's appx 25X my current gross income.

I am always astonished by people who try and out frugal each other in stating how far they go to save money. I admit that I have a good education that I took out a loan to get. My wife and I each bought economical cars brand new. We each have a smart phone, tablet, and ipod. Plus a nice big screen LCD TV with a theater system.

I also have ten years of income saved in retirement and investment accounts, plus more than 6 months of income saved in cash. We have no consumer debt, and I have a very small (< $10k total) education debt I have been writing off on my taxes. I am only 33.

What’s the secret? Not really a secret, but simply common sense. My wife and I invested in our earning capabilities first and foremost. Then started frugally and invested till we started earning more, and our investments started noticeably compounding. Never panicked during recessions or crashes, we simply invested more in diversified funds. Now we each have nice incomes and lavish savings. We aren’t spending all our time trying to save the next penny; we are spending our time working at making ourselves more valuable in the marketplace. We now save more then when we started utilizing less as a percentage of our income. We buy less because we buy good quality and use it till it disintegrates.

People spend inordinate amounts of time squeezing every penny, instead of making more. Being frugal is a stepping stone to being financially free; it’s not the be all and end all of life. Cut the waste from your life, but not the joy. Buy things within your means and use them till they fall apart, but don’t skimp on things that matter. You can’t squeeze the pennies that aren’t earned.

Be wise with your money, not just frugal. Fool has that ideal as well, and we living by it.

If one looks long enough and hard enough, any number of statistics can be found to support almost any statement. It does not mean it is a fact. Statistics are numbers which can be manipulated to meet any end. The one thing that appears to be overlooked is the massive materialism that many people in our country seem to embrace causing debt very difficult to overcome.

Getting and spending does not create a sound future. As Subsound wrote, frugality and wise spending make a difference.